Cardamom gains spice

Prices are expected to remain high as the Feb-May lean season approaches

Cardamom, the “Queen of Spices,” is on a record rally. Prices have almost tripled over the last 11 months. The futures contract prices of cardamom on the Multi Commodity Exchange (MCX) bottomed at around ₹580 per kg in February 2016.

The contract has been on a strong rally and has skyrocketed about 167 per cent since to the current levels of ₹1,550 per kg.

It is on the verge of making a higher close for a record 11th consecutive month.

After falling sharply from its record high of ₹2,097 made in June 2010, the MCX-Cardamom contract was broadly range-bound between ₹600 and ₹1,100 for a prolonged period of three years between 2013 and 2016.

The rally from the February low last year has broken this three years of sideways consolidation.

Supply concern

Though the south-west monsoon was declared “normal” last year after two consecutive years of drought, the cardamom growing areas received poor rains. Cardamom farmers say the monsoon was very bad and about 50 per cent deficient. A failed north-east monsoon also added to the crop worry. The farmers say that last year they received just about 10 per cent rains compared to what they used to get normally during the north-east monsoon. The yields are thus likely to take a hit and are expected to be just 30 per cent of last year’s. Prices are expected to remain high as cardamom enters its lean season which is between February and May when the supply comes down.

Technical outlook

On the charts, the MCX-Cardamom futures contract is on a strong footing. The strong break above ₹1,100-1,200 resistance zone in October last year confirms the breakout of the three-year-long sideways consolidation.

The 21-week moving average at ₹1,286 is a key support for the contract. Only a strong break below this support may turn the outlook negative. But a decisive break below this support looks less probable at the moment.

Also, the 21-month moving average is on the verge of crossing the 100-month moving average. This suggests that the uptrend that has been in place over the last 11 months would remain intact. It also signals that the downside could be limited.

The contract has closed above the key 61.8 per cent Fibonacci retracement level of ₹1,504 last week. This may retain the bullish momentum. As long it trades above ₹1,504, a rise to test the next resistance level of ₹1,650 is likely in the coming weeks. Such a rally will also increase the possibility of the contract revisiting ₹2,000 levels eventually in the coming months.

However, since the contract has been on a continuous rally, an intermediate pause and a short-term corrective fall look imminent. Inability to break above ₹1,650 or a pull-back below ₹1,500 from the current levels may be a trigger for the corrective fall.

Such a pull-back move may take the contract lower to ₹1,400 or even ₹1,300. However, after this corrective fall the overall uptrend may resume targeting ₹2,000 .

Read the rest of this article by Signing up for Portfolio.It's completely free!